Uncomfortable truths about the RCBC scandal

THE ongoing RCBC money-laundering investigation has evidently become a topic of conversation from New York to Singapore; besides major newspapers in both those cities (and elsewhere outside the Philippines) reporting on the story, I also received phone calls from people in both places eager to discuss the matter.

That should come as no surprise given the magnitude of the crime, but unfortunately not many people here seem to have grasped yet just how damaging this is to the country. The sad reality is that the all-too-typical way this scandal is being addressed only serves to camouflage the relatively simple, broad facts of the case, and almost certainly won’t lead to the swift, decisive solutions the country needs to implement to avoid becoming a financial pariah.

Grandstanding Senators displaying their lack of knowledge about how banking works or
CBCP priests offering tangential complaints about the evils of gambling are not the way to reveal these uncomfortable truths about the scandal:

This is not the first time this has happened at RCBC. As one correspondent—a regional investment banker, who called in from Singapore—put it, “They expect us to believe it’s like that line in Casablanca: ‘Of all the gin joints, in all the towns, in all the world, she walks into mine.’ The choice of RCBC couldn’t have been chance, or a thief just picking a bank at random to launder his money. The people involved either worked with RCBC, or with some of the people in it, sometime in the past, or RCBC has a reputation for doing this kind of business.”

The people behind RCBC would certainly hotly dispute that accusation, but it is eminently logical—no thief or group of thieves smart enough to successfully carry out the theft of the mind-boggling sum of $100 million would take the stupid step of entrusting their loot to any person or organization in whom they did not have absolute confidence. The conspirators knew, through prior experience or otherwise reliable information, that RCBC could handle a transaction of this unusual kind and scale.

Casinos are not really the issue. “Laundering money through a casino? That’s like money laundering 101,” my Singapore caller observed. “That’s probably the first lesson they give at the money-laundering seminar.”

In one respect, the CBCP’s condemnation of the gaming industry is justifiable—if it did not exist, it would not be available as a conduit for illicit financial transactions.

“It could be argued that casinos shouldn’t have been exempted from the anti-money laundering reporting provisions, as you suggested,” my New York caller (also an investment banker) observed. “I don’t know that I’d disagree with that. But there are two things I would say should be considered. First, the casino is basically the last step in the process—the real crime has already happened by the time the money reaches that stage, which makes finding a substitute path easier if the casino option isn’t available.

“Second, imposing anti-money laundering restrictions on casinos, beyond the relatively strict operating guidelines they already have to follow, essentially criminalizes the industry,” he added. “That sounds harsh, but that’s exactly what it boils down to: Transactions above a certain amount are presumed to be illicit and must be reported, and possibly investigated. As I said, that may still be the way to go. But if that’s the case, it’s going to put a limit on investment in that sector…you’re as much as telling investors, ‘There’s a limit on how much money we’ll let you make.’ At least that’s how it will come across. And given the Philippines’ enthusiasm for trying to build up its casino sector, I’m not sure that’s the message they want to convey.”

Legislation is not the answer to a management problem. Both of my callers scoffed at the Senate hearing ostensibly being held “in aid of legislation.”

“The narrative coming out of this ridiculous Senate hearing is that the conspirators ‘exploited loopholes in the law,’” one said. “They didn’t exploit loopholes, they flat-out broke the law that already exists. Passing a new law is not going to help that at all.”

Further adding credence to the assertion that despite its scale, the scam is most likely symptomatic of a localized management problem is the ownership structure of RCBC, which my Singapore caller, who is familiar with the people behind most of the big banks in Asean, highlighted: After the Yuchengco family, the next two biggest stakeholders in RCBC are Cathay Financial, the Taiwan-based insurance concern, and the International Finance Corp. (IFC), an arm of the World Bank.

“Do you really think those kinds of organizations would tolerate being part of a money-laundering scheme, if they were aware of it?” he asked, rhetorically. Making the reasonable assumption that they would not, suggests a personnel rather than a systemic issue.

Which personnel? One bank president I spoke to here found it difficult to believe that top-level executives were not involved. “If an $80 million deposit comes into our bank, I can tell you I would know who sent it, from where, and who was receiving it. Now, I’m certainly not accusing [RCBC CEO Lorenzo] Tan of anything, and how they work over at RCBC is their business. As far as that goes, I’ve never known them to do anything improper at all, before this. It’s just a little hard to believe the head office would be completely in the dark.”

My Singapore caller, who is acquainted with Mr. Tan personally, had a more charitable point of view. “I would be very, very surprised, shocked really, if it turned out he was involved in this at all. He’s got his flaws, but being a crook is not one of them. That’s not who he is.

“But,” he added, “There was obviously a serious breakdown in management. And that’s his responsibility. It’s ironic; in one family you have what seems like the best and worst of Philippine banking. Nestor [the brother of RCBC CEO Lorenzo]runs BDO, and they win ‘best bank’ awards all the time. It’s the only Philippine bank to win ‘best bank in Asia.’ Then over at RCBC, well, it’s kind of a mess, isn’t it?”

What he suggested should happen, and quickly, is that the BSP exercise its regulatory power over banking management, something for which there is a fairly recent precedent: On mere accusations (albeit strong ones), Roberto Ongpin was removed from his position at Development Bank of the Philippines by regulators. If political considerations are not part of the equation—which was a persistent rumor in the DBP case, although that is a notion that certainly does not square with the professional and unassailably ethical character of BSP’s current leadership—removing Tan and any other officers who may be under suspicion is a unilateral step the BSP could take quickly, and should, my caller opined, if the Philippines has any desire to avoid being heavily sanctioned.

Unless clear steps are taken toward a resolution of the RCBC scandal, he concluded, “This is going to be a disaster for the country. The additional scrutiny is going to hurt the banking industry, but the ones who are likely to suffer most are the OFWs,” whose remittances would be affected by new anti-money laundering measures—measures that in any case may neither be necessary nor effective.

36 Comments

I really don’t know why every time there’s a huge issue the senate is conduct investigations which uses the funds of the govt. Every investigation they have(specially on big issues) is going nowhere since they can’t even file a case against people involved, it will still be again investigated by the court(which for me is the proper place). If its for the aid of legislation i didn’t heard or see any improvement on laws we have(those laws involved in their investigations and like so), they are just wasting the govt.funds

Ms. Deguito was instrumental in the transfer of funds to criminals.
She knowingly created fictitious dollar accounts last year , then defied the stop order from main office and pushed for the release of funds, then instructed Philrem to convert dollar amount to pesos and deliver to the criminals.
Now she will lie and name higher ups of RCBC to save her own SKIN!

what do you think should have done by the ff. to prevent the money laundering?
A. Maia Deguito- Branch Manager
B. Lorenzo Tan, President and CEO RCBC bank
C. BSP Governor
D. Rcbc compliance officer
E. Government- Legislative
3.a ung as a student of principles of mgt
4. what will be the effect of this scandal on our economy as a whole? on our international financial standing? and our international image?

This is my view: Money laundering is an old scheme waiting to be executed at the right conditions. I’ve read that Bangladesh Bank was priorly infected by malware virus, thus their system became vulnerable and waiting to be exploited by international hackers. Next is finding an institution where to transfer the money. So why Phil?.. maybe to embarass the gov’t because of its South China Sea claim filed (hitting two birds in one shot). And why RCBC? I believed that Deguito knew weaknesses in internal control, and agreed to participate in the operation in exchange for percentage of the loot. Now that conditions are right, they started by opening a fictitious Dollar accounts .. and waited for the money to come in. There was no independent control over dormant accounts that’s why she was able to withdraw and transfer the remaining amount to Mr. Go’s dollar account. No centralized processing of electronic stop payment order, thus, it was bypassed by Deguito. Withdrawal of P20MM required dual signature, hence collusion Angela Torres was needed.

How the Philippine government is dealing with it is actually worst than the crime that has been committed. How can the senators start investigating on the process of the heist when they do not even know how the banking systems work. They are putting a ridiculously funny show using their “common sense” in trying to solve a crime that could have been the biggest $1Billion loot. The real hackers must be laughing off their asses watching our senator baboons figuring things out. Well, good luck to the Philippines. We have got baboons for senators! I’m quite sure those baboons won’t get to solve the heist.
Or maybe the baboons are just acting dumb and checking out new ways to launder money.

Had bank manager Maia Deguito been more prudent in handling this case, this cybercrime wouldn’t have been consummated. Whatever the versions of the story now, One thing is sure: she is a big player in this heist and should be answerable to the poor Filipino people who will suffer the brunt of this mess

If you’re the owner of RCBC, are you going to implement processes that allow a bank manager and a Kim Wong to potentially bankrupt your bank by not double checking withdrawals amounting to $81M (and potentially $1B)? This amount can effectively ruin smaller banks like a bank run.

It is very infair to Lorenzo Tan who has been known in financial world as a man of integrity and dedication. He was never involved in any scandal all his life. It is just and fair that we should give him an opportunity to explain his side rather than labelling him as one of the conspirators. I’m very sure he will clear his name.

Gambling as a money laundering technology in the Philippines is old. When there were no legit casinos yet in the 1960s, smuggling barons used to win the Sweepstakes (PCSO) every week. How they get hold of winning tickets is a tale of lore.. I haven’t heard of present lotto winners getting value addition on their winning numbers at this time yet…

Ms. Maia Deguito conveniently denied that she took a big bribe and said she was under treat.
What about her meeting Mr. Wong last year and opening 4 to 5 fictitious dollar accounts in 2015? Was she under treat that time? I think not. She was greedy.
And without Deguito’s active intervention to release the funds despite a hold order from central office this would not have happened.
She is very guilty.

Remember the heist would have netted close to a BILLION DOLLARS if only the syndicate spelled the word foundation correctly instead of “fandation.” A Billion dollars! Will even a highly paid president of a Philippine bank will be invulnerable to such a temptation? I don’t think so.

“It’s ironic; in one family you have what seems like the best and worst of Philippine banking”.

Perhaps the above quote jumps to conclusions and is not at all fair. First of all, implying that Nestor Tan and Lorenzo Tan embody the ‘best and the worst’ of Philippine banking is totally unfair. RCBC used to have problems when it was managed by the Yuchengcos and Cesar Virata, foremost among them was RCBC’s being linked to Yuchengco’s ill-fated Pacific Plans. But that was before Lorenzo Tan stepped in. Since Lorenzo Tan took over as CEO, RCBC has made great strides and, before this incident, its credibility was being restored. Lorenzo Tan cannot embody ‘the worst’ of Philippine banking, since he has been hailed as a ‘turnaround’ virtuoso, having performed outstanding work at PNB and Sun Life Assurance, among other financial firms.

RCBC was in some ‘kind of a mess’ during the 1998 Asian financial crisis, just like the majority of Philippine banks. Wasn’t Equitable PCI Bank, which eventually was bought up by BDO, also in some ‘kind of a mess’ then? Probably in a worse mess than RCBC was. And, yes, RCBC’s being identified with the Yuchengco’s Pacific Plans fiasco was not helpful to its reputation at all. But that all seemed like water under the bridge, and we all thought that Lorenzo Tan would come and put RCBC back together again. It all seemed to be going along well. Until this happened.

However, making assumptions, extrapolating conclusions and engaging in conspiracy theories at this point may be premature. Perhaps we can all wait until the all the facts are in. It is a great pity should the good name some people worked hard all their lives to develop be ruined by inferences and insinuations.

80 M USD. that is the amount mentioned in the RCBC “transaction” It also mentions that in other banks, transactions like this would be known to the bank’s CEO. It may be true that Lorenzo Tan was the reason for RCBC’s “turnaround”, but you must keep in mind that the best asset of a bank is TRUST.

the senate investigation is NOT THE WAY TO GO THIS EARLY. the job of investigation should be given to people who are experts and knowledgeable of how hackers and bank operate. the senate or congress should come in only after the investigation of experts have been completed IF IT’s PURPOSE IS FOR LEGISLATION. THOSE in SENATORS ARE NOT EXPERTS in investigating this kind of scam. first of all they are computer illiterates. hindi porke marunong kang gumamit ng wordstar, excel, mag facebook at e-mail o twitter e maiinitindihan mo na yung mga computer jargons.

You are perfect correct to say that the crime has already been consummated when the money or the loot was received by the casinos. The fact however that the casinos became the hiding place of the loot does not exempt them from liability as accessories to the crime. Now that the FBI is investigating, criminal indictments may follow soon in the US. It should be recalled that the US Department of Justice through its prosecutors and the FBI also investigated the FIFA hush money scandal which resulted in the criminal prosecution in the US of FIFA officials.

This $81 million money laundering scandal is a big embarrassment to the Philippines. The country will forever be tagged for its infamy because it is one of the world’s biggest heists. I can not now recall how much was involved in the 2010 Credit Lyonnaise heist in France but this $81 million comes close it.

i agree that the BSP should use its regulatory powers to the hilt in unearthing who the culprits are; beginning with bank insiders. no matter who gets hurt. pending the investigation the big bosses should take a leave of absence

The biggest question is why RCBC Jupiter Branch ? A fairly small branch comparing to medium size branch like Unimart Br, or Quezon City Br. Why did the Chinese mafia pick Jupiter Br. ? Or was it handpick by upper management RCBC because they placed Dequito there, a fairly new manager with 2 years residency ? When the 81 million dollars came in, there should already be a red flag from upper management. This is 4 billion pesos wire transfer. Where did it came from ? I am 100 percent sure that upper management has something it do with this. Now it is for the senate investigating group to unravel this. There is a possibility that there might be a bank run in RCBC , like depositors are nervous that their money is not safe in RCBC. I will not be surprise. Banking is basically runs by trust. You put your hard earned mony because it is safe in the bank or maybe not.

I worked for RCBC 30 years ago. They are very strict in compliance and in the branch I worked, manager , cashier and accountant know their customers and this was 30 years ago. I was just very surprise why this happen. Even bookkeepers can stop the managers if something is wrong. I can only presume that this is a group collusion . That all of the Jupiter branch employees are a part of the heist.

That’s how corrupt our people even in the business sector especially those Chinese businessmen who were involved. It’s definitely a work of a big syndicate operating in our country. Our government should get to the bottom of this issue and a harsher punishment should be slapped on the guilty…firing squad like they do in China. Only then we can eliminate this case of multimillion dollar money laundering to restore the tarnished image of our banking system.

While I do agree with the content of your article, I would also like to point the headlights towards the FED! (Not as if I would ever leave a chance to talk badly about the FED) Especially considering the Bangladesh-CentralBank being closed on the day of the transaction should have turned on some red lights (Weekend is Fridays and Saturdays in Bangladesh), if they haven’t been triggered already by the fact that the Central Bank of Bangladesh ordered Money to be sent to a private account on the Philippines.
Furthermore I go out on a limb here and assume the Filipino politicians would prefer to keep as many options for money laundering open as possible, for future use by themselves..

These politicians would never ever plug the loopholes beneficial to them, unless these are pinpointed to by the regulators or other business experts. But they would be quick to the draw by creating new legislation with new loopholes.